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Evening markets: wheat soars as Russian dryness rings alarms

Remember Russia's drought? The weather disaster which, more than any other last year, fuelled the rally in crop prices?

Well there are fears of some kind of echo this year. And didn't wheat prices reflect them, soaring nearly 4%.

"It has turned hot and dry and the forecast remains that way for the next 10 days," Darrell Holaday at Country Futures said.

"This will be a big psychological impact if this persists for very long," even if only to trim expectations of an imminent return of Russia and its competitive grain exports to international markets, after a ban since August.

"The weather that is probably prompting the most buying is the situation in Russia. Watch this closely," Mr Holaday said.

In the interests of balanced journalism, Agrimoney.com should also point out a comment from Roman Vilfand, director of the Russian Hydrometcentre, last week that there was a one-in-5,000 chance of a repeat of Russia suffering a 2010-style drought this year.

Dry China, Europe...

Still, the site should also mention that Russia's dry spell is not the only weather concern.

WxRisk.com's long-range forecast said that Europe's dearth of rain could also last, thanks to a pattern caused by warm north Atlantic sea temperatures.

The conditions "favour a pattern that has large areas of high pressure covering much of Europe and the suppressing or diverting significant weather systems that might bring important and much needed rains".

In China, cold Pacific waters may prove a culprit, meaning that "cold fronts and low pressure areas that typically bring significant rains to east central and north eastern China are developing too far to the east and most of the significant rains are forming too far to the east", WxRisk.com said.

And this before getting to the wet weather which continues to hamper spring

corn

sowings in some US states.

"A wet pattern this week will limit progress in the wet areas," broker US Commodities said.

H-P sauce

In short, the market was surrounded by weather uncertainties, which protected agricultural commodity prices from selling even on a weak day in broader financial markets.

Sure, shares in Frankfurt and London lost more than 1%, with those on Wall Street showing smaller losses in late deals, declines blamed on the eurozone debt crisis and some poor US housing data

US new building permits fell 4%, signalling that the US construction sector remains on the back foot.

Copper

oil

Where they closed

However, agricultural commodities enjoyed a generally firm day, saving the CRB commodities index from all but a marginal decline, and led in Chicago by

wheat

, which soared 3.7% to $7.63 ½ a bushel for July delivery.

Corn

gained 3.3% to $7.20 ¼ a bushel for July, and 2.8% to $6.53 ¼ a bushel for the new crop December lot.

July

soybeans

added 1.1% to $13.41 a bushel and the same to $13.20 ½ a bushel for the new crop November contract.

Many of the gains came too late to help European grains post such strong gains. Still, Paris wheat for November closed up 1.2% at E231.50 a tonne, while its London peer gained 1.6% to £180.50 a tonne.

Interestingly, that continued to close the lot's discount to London's July contract, which has been undermined by the stoppage at the Ensus ethanol plant, and the loss of 100,000 tonnes a month in UK wheat demand for now. The July lot closed down 0.7% at £186.25 a tonne.

'Worries rife'

The strength, by and large, spilled over into soft commodity futures too, with

sugar

also helped by continued talk of delays in Brazil, the top exporter.

"Worries about lengthy vessel line ups at Brazilian ports, and producers claiming that sugar will be slow to emerge due to concentration on ethanol production out of the cane harvested so far, are still rife," Nick Penney at Sucden Financial said.

New York's July sugar lot closed up 0.7% at 21.93 cents a pound, beginning to string together something of a recovery from the eight-month lows hit earlier in May.

Coffee

for July added 0.8% to 266.10 cents a pound, as investors with short positions took profits following recent falls.

'Continue to languish'

However,

cocoa

eased, closing down 0.9% at $2,980 a tonne, amid continued expectations of a rise in exports from Ivory Coast, the top producer, and decent output hopes too.

"In addition to the restart of exports from the Ivory Coast, further price pressure is likely to stem from higher volumes of supply from the largest cocoa producer after the Ivory Coast – Ghana," Sudakshina Unnikrishnan at Barclays Capital said.

"Further, recent rains bode well for Nigeria's cocoa crop. New York cocoa prices continue to languish and we anticipate further price weakness over coming months."